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Equity Incentive

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					Equity Incentive
Definition of incentive stock options
   ?As companies increasingly decentralized and stock management techniques
become more complex, the world's largest companies for a reasonable
incentive for companies to management, innovation incentives, have introduced the
form of stock options and other equity incentives. Incentive is an operator obtained by
the form of company stock to give enterprise managers a certain economic rights, to
enable them to participate as shareholders ﹑ share profits, business decisions to take
risks, so diligently for the company's long-term development services kind
of incentive method.
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The principle of equity incentives of managers and shareholders is actually a
relationship between the agent, shareholder management of assets entrusted manager.
But in fact, in the agency relationship, because of information asymmetry between
shareholders and managers do not fully contract, rely on the manager's
"moral self-discipline." Shareholders and managers is
inconsistent with the goal, the shareholders wish to maximize the value of their equity
holdings, the manager wants to maximize its effectiveness, so that exists between
shareholders and managers, "moral hazard" incentive and
restraint mechanisms through to guide and limit behavior of managers.

Incentives in different ways, mainly according to the manager the wage conditions
and qualifications companies are of pre-defined, relatively stable in a given period, so
the relationship with the company's performance is not very close. Bonus
financial indicators generally the assessment to determine the manager's
income, and is therefore closely related to the company's short-term
performance, but no significant relationship between the company's
long-term value, managers may be short-term financial targets for the
company's long-term interest expense. But from the shareholder point of
view, his concern is the increase in the company long-term value. Especially for
growth-oriented companies, the value of managers is to achieve more long-term value
of the increase in the company, not just short-term financial targets to achieve.

For managers concerned about the interests of shareholders, need to pursue the
interests of managers and shareholders, as much as possible in line. In this respect,
equity and incentive is a better solution. By making managers holding shares in the
period of time to enjoy the equity value-added income, and to some extent to take
risks, you can make in the course of business managers care more about the
company's long-term value. Equity incentive managers to prevent
short-term behavior, and guide their long-term incentives for good behavior and a
constraint.
Incentive meaning and significance?
     Incentive is the enterprises under certain conditions, to a certain way (stock) to
give the business a number of companies who stock to carry out a system of
incentives. It can be short-term interests and long-term business interests effectively
combine to make business owners who stand to think the position of the development
of enterprises, so as to achieve business benefits owners and operators jointly promote
the win-win situation. In the implementation of equity incentive, the business owned
by the enterprise's equity incentive program to establish a line under the
right price. Therefore, the share price below the exercise price of incentive stock
means that ordinary investors can lower prices than the executives to buy the stock.
Therefore, in this sense, the stock fell below the exercise price of incentive stock
means higher margin of safety.
?
Incentive model
(1) Performance shares

Is determined at the beginning of a more reasonable performance goals, if the
incentive object to the end of the year to achieve the desired objectives, the Company
granted to its number of shares or extract some of the prize fund to buy shares. Cash
flow performance of stocks usually have the time and quantity limits. Another stock
with the performance models are very similar in operation and the role of long-term
incentives is performance units, the difference between it and the performance of the
stock is the stock performance of the stock is granted, the performance units are
awarded cash.

(2) stock options

Refers to the object granted to a right incentive, incentive objects can be within a
specified period of time to buy a pre-determined price of a number of outstanding
shares of the company, you can give up this right. The exercise of stock options also
have the time and quantitative restrictions, and the need to target their own incentive
spending cash for the exercise. Some listed companies in China currently applied a
virtual stock option is a virtual combination of stock and stock options that were
granted to encourage the object is a virtual stock options, incentive objects acquired
after exercise is a virtual stock.

(3) Virtual Stock

Refers to the object granted to a virtual stock incentive, incentive object can thus
enjoy a certain amount of stock appreciation rights and dividend income, but no title,
no right to vote, can not be transferred and sold, leaving the company to automatically
invalid.

(4) Stock appreciation rights

Refers to the object granted to a right incentive, if the stock price up, encouraging the
object can be obtained through the exercise of stock price appreciation of the
corresponding number of income incentives do not object to pay cash for the right line,
line of the right to receive cash or equivalent shares .

(5) restricted stock

Yes Zhi object prior to grant a certain number of incentive shares, but the source of
the stock, sell There is some special restrictions, generally only when the excitation
Duixiang for achieving certain goals (Ru into the black), the incentive Duixiang
Caikepaoshou restricted stock Bing benefit.

(6) deferred payment

Refers to the company designed a package of incentive pay income program object,
part of which is equity incentive income, equity incentive income does not grant that
year, but according to fair market value of shares converted into the number of shares,
after a certain period, or under the form of company stock when the stock market
value of cash incentive paid to the object.

(7) the operator / employee stock ownership

The object is to hold a certain number of incentive stock of this company, the
company's free gift of these stock incentive object, or subsidies to
encourage companies to buy the object, or the incentive to buy the object at its own
expense. Incentive object can benefit from stock appreciation in the stock devaluation
loss.

(8) management / employee buy

Refers to the management or staff leverage financing to buy shares of the Company to
become shareholders, and other shareholder risk and profit sharing, thereby changing
the company's shareholding structure, control, and asset structure to
achieve business ownership.

(9) book value appreciation rights

Purchase of specific types and virtual types are divided into two types. Object type is
the incentive to buy in the beginning of the actual net asset value per share to
purchase a certain number of shares, net asset per share at the end of the period and
then sold back to the end of the value of the company. Type is the motivation of
virtual objects without spending money in the beginning, the company granted
incentive shares the name of the object number, in the end of the net assets per share,
according to the company on behalf of the increment and the number of shares to
calculate the incentive earnings target, and accordingly to target cash incentive.
Above first to eighth species associated with the securities market equity incentive
model, in the incentive model, the incentive object proceeds by the
company's stock prices. The book value and stock appreciation rights are
not related to equity incentive model, incentive object proceeds only with the
company's financial indicators of a net asset value per share --- about,
nothing to do with price.
Equity Incentives and Market Manager
Effectiveness of equity incentives to a large extent depends on the establishment of a
sound market manager, and only in appropriate conditions, the equity incentive to
play its lead manager role in long-term behavior of the positive. Manager acts with
long-term interests of shareholders, in addition to its intrinsic interest than driving
while under the influence of various external mechanisms, the behavior of the
manager is ultimately the interests of its internal and external influences drive the
balance of the results. Incentive is only part of external factors, its application requires
a variety of mechanisms to environmental, these mechanisms can be summarized as
the mechanism of market selection, market evaluation mechanism, control constraint
mechanism which will incorporate incentives and environment provided by the
Government policy Falv .

1. Market selection mechanism

Full market selection mechanism can guarantee the quality of managers, and
managers have long-term behavior of the constraints guide. Administrative
appointment or other non-market selection method to determine the managers, it is
difficult and long-term interests of shareholders in line, it is difficult to play a role in
incentive and restraint mechanisms. For such managers to provide equity incentives is
no basis, nor the interests of shareholders. Professional managers provide a good
market, the market selection mechanism, a good state of market competition will
eliminate unqualified managers, managers in this mechanism is market-determined
value, the manager will consider in the course of business in the manager's
own The value of the market positioning and avoid speculation, such acts as lazy. In
this environment, equity incentive may be the only economic and effective.

2. Market evaluation mechanisms

No objective evaluation of effective marketing, it is difficult on the
company's value and performance of managers to make a reasonable
assessment. Excessive manipulation in the market, excessive government intervention
and social audit system can not guarantee a fair and objective circumstances, the
capital market is inefficient, it is difficult to determine the company through the stock
price long-term value, it is unlikely way through incentive stock options evaluate and
motivate managers. No reasonable fair market evaluation mechanism, the manager of
market choice and the incentive will be impossible. Incentive means, of course, as an
incentive will be impossible to play.
3. Control constraint mechanism

Control constraint mechanism is to manager the restrictions, including laws and
regulations, policies, company policy, corporate control management system. Good
control constraint mechanism, to prevent the failure of the manager's
behavior, to ensure the healthy development of the company. Binding mechanism is
the role of incentives can not be replaced. Some domestic problems of state-owned
enterprise managers, not just motivate the problem, the problem is largely bound to
strengthen the corporate governance structure of the building will help to improve the
efficiency of binding mechanism.

4. Comprehensive incentive mechanism

Comprehensive incentive mechanism is the means through integrated behavior of the
manager's guide, specifically including wages, bonuses, equity incentive,
promotion, training, benefits, good working environment. Different incentives and
effectiveness of its incentive-oriented is different, different companies, different
managers, different environments and different business methods corresponding to the
best incentive is different. Companies need to design incentives under different
combination of circumstances. One form of incentive stock options, all depending on
the size of incentive costs and benefits in consideration.

5. The policy environment

Government's obligation to adopt laws and regulations, management
system in the form of the form and strengthen the mechanisms to provide policy
support to create a favorable policy environment, inappropriate policy will hamper the
role of various mechanisms. Domestic equity incentive, in the operational source key
face stock, stock sales channels and application of specific legal issues, market
environment, the Government also needs to strengthen the capital market to eliminate
the unreasonable monopoly protection, separation of enterprise Reform of the
operator by means of appointment to create a favorable policy environment.
The key point of equity incentive
Yintl (Ying Teng Consulting) for the enterprises through the design of equity
incentive plan, equity incentive from which summarizes the main design of several
key points:

An encouraging pattern of choice. Excitation mode is the core issue of equity-based
incentives, will determine the effectiveness of incentives.

2, identifying target incentive. Equity Incentives to motivate employees, balance
long-term goals and short-term business objectives, in particular concerned about the
long-term development and strategic business goals, therefore, must determine the
incentive object-oriented enterprise strategic objectives, namely, selection of the most
valuable business strategy personnel.

3, share the source of funds. Since the object is to encourage natural, and therefore the
source of funds throughout the planning process to become a key point.

4, assessment index design. Exercise certain incentive stock options tied to
performance, one of which is the company's overall performance
conditions, other indicators of personal performance evaluation.

5, determine the incentive amount.
Incentive Status
1 small plate excitation Equity

As of April 30, 2008, the Shenzhen SME Board 221 listed companies are scheduled to
disclose its 2007 Annual Report, 2007, board members of listed companies and equity
incentive compensation cases full disclosure. Overall, small board of listed companies
can truly reflect the situation of the company's pay and high pay and
company directors and supervisors showed a positive correlation between
performance. Small plate 25 listed companies launched equity incentive plan, of
which 7 have entered the implementation phase, the remaining 18 are in the plan and
report to the Commission's record board approval stage. In the 25
companies, most companies approach using stock options, the exercise condition was
treated with ROE, net profit growth and other indicators should be limited, to ensure
the company's long-term stable growth.

2, the excitation Listed Companies

Entered after 2008, received domestic and international economic and financial
situation affecting, A shares have a dramatic correction. Rational stock return of the
equity incentive plan with an excellent implementation of the new space, the listed
equity incentive program launched the initiative greatly increased. Just in the first
quarter on a total of 21 companies announced a stock incentive program, in which 13
models with stock options, restricted stock 5 used, two with stock appreciation rights,
restricted stock with a stock appreciation rights mixed mode.

2007, the company's equity incentive program listed in number far more
than in 2006, the year a total of 13 listed companies launch equity incentive plan.

2007 Equity Incentive listed companies showed the following significant features:
First of all, though there is far more than in 2006, but the quality of equity incentive
programs there are a significant improvement. State-owned holding companies in
particular equity incentive gradually scientific norms, the performance of equity
incentive in improving the performance evaluation system, of scientific performance
evaluation indicators.

Second, the program announced in 2007, all options are stock options. Standing of the
shareholders and the company's point of view, compared to restricted stock
incentive program, stock options model has two significant advantages: a model of
stock options more difficult to obtain benefits, incentive earnings target of all the
shares of listed companies from The grant price of the premium. Second, stock option
plans of listed companies, basically no effect on cash flow.


Stock Option
Employee stock ownership incentive system is based on the form of access to
company stock De Jing Ji to a certain extent the right to make Neng Gou Qi Ye Yi
shareholders of Shenfencenyu decision-making, profit sharing and assume an operator
Fengxian, business interests and the interests of employees Zishen Gengdachengduo
De Bao Chi consistent, so diligently for the company's long-term
development of a system service. Incentive to improve corporate governance, reduce
agency costs, improve management efficiency, enhance cohesion and competitiveness
of the company play a very active role.

Usually equity incentive including ESOP (Employee Stock Ownership Plan, referred
to as ESOP), stock options (Stock Option) and management buyouts (Manager
Buyout, referred to as MBO).




Extended reading:
1. Equity Incentive Plan Design Consulting: www.heyeehrm.com
2.http: / / wiki.mbalib.com / wiki /% E8% 82% A1% E6% 9D% 83% E6% BF% 80%
E5% 8A% B1
3. Ying Teng "management market," series of books
("Performance of Sword", "Cultural Road"
and "public policy")
4. Equity Incentive Consulting think tank:: http://www.yintl.cn/Wisdom/Wisdom.asp
5.http: / / www.hjcn.com.cn/news/media/826360419.html "Central
Business Review"
Open Category:
Business management, company law, securities law, management, market
Incentive should be how
Secretary equity incentive plan when the pilot is above the total Sanshiliuji! PI Hai
Chau: equity incentive needs to be done "four combination" is
undeniable, equity incentive, to a certain extent, to the CEO's interests with
the interests of listed companies together, and thus arouse the enthusiasm of
executives with responsibility . However, this is only from the design or is in theory,
but in actual practice, to give full play the positive role of equity-based incentives,
equity incentives are necessary to make "four combinations."
The first, and "punish" the combination. As an incentive, it
should be "reward" and "punishment" of
the combination. In fact for a complete

**

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Institutional    system,     the     reward     system     is    closely    linked,    the
"prize", then there is "punishment." If
only "prize" and not "punishment", then
this incentive is to change the way to get executives "making
money." Therefore, the reward system must be combined with the
disciplinary system, in the "business growth", while incentives
for executives, for the "performance down" those who should
be punished the same proportion. The equity incentive as a business incentive
mechanisms, it also needs to follow this principle. Upon completion of performance
evaluation indicators, to give executives a "stock" award, but
did not complete the performance in time, should be withdrawn or reduced certain
"equity." Second, combining the level of executive pay.
Currently the CEO did not pay an annual low, can be said that those holding high
salary executives of listed companies for the development of due diligence is their job,
there is no other thing to share-based compensation. Now in order to better the
interests of the executives with the interests of the company together, that will have
the advent of equity incentives. Among these invisible to the executives added a new
revenue sources. Therefore, in order to reflect fair and reasonable incentive stock
options, it is necessary to stock incentive and executive compensation in the high and
low together. Companies to take high salaries, the proportion of its equity incentive
should be low; the contrary, a low-pay companies, the proportion of its equity
incentive can be appropriately increased number. Thirdly, with stock market value of
combined assessment. The interests of executives with close ties to the interests of
investors. The increase or decrease in market value gains and losses for investors the
most direct expression. Generally speaking, good benefits listed companies, listed
company's share price will rise, thus leading to the increase in market
capitalization. Therefore, in this case, equity incentives to executives to be reasonable.
Otherwise, the stock market decline, investors appeared investment loss, in which
case the equity awards to executives on the situation does not match up to reason.
Fourth, with the return to secondary market investors combined. The growth
performance of listed companies should also be reflected in the growth of shareholder
return on investment. If that growth is not reflected in the secondary market investors
to invest in the growth of return, then, for the shareholders, this growth is only a piece
of paper wealth has no real meaning at all. Therefore, the equity incentive for
executives to increase in proportion with the dividend yield combined proportion of
this increase accrued as a percentage of equity incentives.

				
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